Alibaba Details Partnership Structure

In its amended filing issued this week, Alibaba Group Holding Ltd. laid out just how its much-talked-about partnership structure works.

The structure, where a small group of managers nominate the majority of directors on the board, was rejected by Hong Kong regulators and Alibaba pushed its much-anticipated listing venue to the U.S. rather than in the former British colony. Hong Kong has a principle of one-person-one-vote for its stocks.

A worker performs shadow boxing during an open day at e-commerce giant Alibaba Group’s office in Hangzhou.

Associated Press

The partnership structure is different from the dual-class structure of tech giants like Google Inc. or Facebook Inc., where a company issues two classes of shares with different rights, giving founders and management greater weight in shareholder votes. But the 27 partners effectively control Alibaba’s board, even though they only have a minority stake in the company.

Specifically, the partners have an exclusive right to nominate a simple majority of the board. Any board candidate they put forward is presented to shareholders for a vote. If shareholders reject that candidate, they can appoint another candidate, without a vote. That candidate will serve as an interim director until the next annual general meeting, where either the same candidate or yet another nominee proposed by Alibaba partners will stand for election.

Some lawyers say the partners’ right to appoint an interim director could limit other Alibaba shareholders’ ability to influence corporate matters.

Alibaba’s corporate governance arrangements suggest a founder is intent on maintaining control of his company at all costs, said Antony Dapiran, a Hong Kong-based lawyer.

An Alibaba spokeswoman declined to comment.

Alibaba’s 27 partners are governed by a partnership committee of five, including founder and Chairman Jack Ma, Vice Chairman Joe Tsai and Chief Executive Officer Jonathan Lu. Of the 27 partners, 22 are Alibaba Group executives while the rest are executives of affiliated companies.
Every new partner has to be approved by partnership committee and a vote from partners.

Softbank Corp and Yahoo Inc. – the largest and second-largest Alibaba shareholders that own 34.3% and 22.5%, respectively — aren’t Alibaba partners, but they will agree to vote their shares in favor of Alibaba partners’ board nominees at each general shareholders meeting, according to the IPO filing.

As long as SoftBank and Yahoo remain substantial shareholders, board director candidates nominated by Alibaba partners will likely receive a majority of shareholder votes and will be elected as directors, Alibaba said in its filing.

“The best way to maintain control of your company is to do a good job managing it, in the best interests of all shareholders,” said Mr. Dapiran.

Alibaba’s IPO, expected within the next few months, could raise US$20 billion or more, making it one of the largest listings in U.S. history.